The impact of climate change on agriculture and food prices: combining a micro land use model and a market equilibrium model

We develop an empirical farmland allocation model based on explicit profit functions that is linked to a market demand model. The model accounts for corner solutions, enabling estimation with disaggregated data, and thereby allows treating prices as exogenous. The integrated model enables assessing the impact of climate change on agriculture under partial equilibrium in food markets, while incorporating the production responses of the micro units. For Israel, we obtain adverse simulated effects of climate change on farm profits, food prices and consumer’s surplus, which are considerably lower compared to the case in which price-feedback effects on agricultural supply are overlooked.